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1. Company Snapshot

1.a. Company Description

Canadian Pacific Railway Limited, together with its subsidiaries, owns and operates a transcontinental freight railway in Canada and the United States.The company transports bulk commodities, including grain, coal, potash, fertilizers, and sulphur; and merchandise freight, such as energy, chemicals and plastics, metals, minerals and consumer, automotive, and forest products.It also transports intermodal traffic comprising retail goods in overseas containers.


The company offers rail and intermodal transportation services through a network of approximately 13,000 miles serving business centers in Quebec and British Columbia, Canada; and the United States Northeast and Midwest regions.Canadian Pacific Railway Limited was incorporated in 1881 and is headquartered in Calgary, Canada.

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1.b. Last Insights on CP

Canadian Pacific Railway Limited's recent performance was negatively impacted by a disappointing Q2 earnings release, which missed estimates with earnings and revenue surprises of -1.22% and -4.08%, respectively. The company's debt burden increased with a C$1.4 billion debt offering, comprising C$500 million in 4.00% notes due 2032 and C$600 million in 4.40% notes due 2035. Additionally, the company's revenue growth was not as strong as expected, with revenues of $3.7 billion, diluted earnings per share (EPS) of $1.33 and core adjusted diluted EPS1 of $1.12.

1.c. Company Highlights

2. CPKC's Strong Q3 2025 Earnings: A Closer Look

CPKC reported a robust financial performance in Q3 2025, with revenues reaching $3.7 billion, up 3% year-over-year. The operating ratio improved by 220 basis points to 60.7%, and earnings per share (EPS) came in at $1.10, an 11% increase from the previous year. The actual EPS was slightly below estimates of $1.11. The company's strong volume growth of 5% was a key driver of the revenue increase, with notable strength in automotive, bulk, and intermodal segments.

Publication Date: Oct -31

📋 Highlights
  • Volume & Revenue Growth: Achieved 5% volume growth and 3% revenue increase to $3.7 billion, driven by strong performance in automotive, bulk, and intermodal sectors.
  • Operating Efficiency Improvements: Operating ratio improved 220 bps to 60.7%, with key metrics like terminal dwell, train length, and velocity showing significant gains.
  • EPS Growth: Earnings per share rose 11% to $1.10, supported by $165 million in KCS synergy savings and 91% completion of a $39 million share repurchase program.
  • Meridian Speedway Expansion: Strategic project to connect Atlanta to Dallas in 30 hours, enhancing competitiveness and unlocking $200+ million in industrial development pipeline.
  • UP/NS Merger Concerns: Highlighted risks of anticompetitive behavior, with a 16-17 month regulatory review period and opposition to potential market power consolidation.

Operational Highlights

Mark Redd, Chief Operating Officer, highlighted the team's dedication to delivering strong operating performance, with improvements in terminal dwell, velocity, train length, and train weight. The network is performing well, with solid improvements in key operating metrics, setting the stage for a strong growth outlook in the fourth quarter.

Revenue Growth Drivers

John Brooks, Chief Marketing Officer, noted that freight revenue growth was 4% on a 5% increase in revenue ton-miles (RTMs). The company delivered strong growth in bulk and international intermodal, while continuing to leverage its full network and grow its longer length of haul traffic. Pricing remains strong, with renewal pricing above the long-term outlook of 3% to 4%.

Valuation Metrics

With a P/E Ratio of 22.45 and an EV/EBITDA of 14.15, the market appears to be pricing in a certain level of growth and profitability for CPKC. The company's ROE of 8.97% and ROIC of 5.15% indicate a relatively strong return on equity and invested capital. Analysts estimate next year's revenue growth at 6.2%, which may be factored into the current valuation.

Outlook and Guidance

Nadeem Velani, CFO, expressed confidence in the company's ability to achieve mid-single-digit volume growth and a sub-57% operating ratio, supporting double-digit earnings growth guidance. The company has strong visibility into the opportunity in November and December, with easy compares and offsets on the bulk side to support the top-line view.

Merger and Acquisition Update

Keith Creel, CEO, discussed the potential UP and NS merger, stating that it's not a foregone conclusion that it will be approved, and the hurdle is high. The company is exploring opportunities to create alliances and leverage relationships to achieve merger-like benefits without the risks. Creel emphasized that the company's voice is material and meaningful, and they will continue to invest heavily in the US.

3. NewsRoom

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Canadian Pacific Continues to Grapple With Rising Expenses, Debt Woes

Dec -05

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Canadian Pacific Kansas City (TSX:CP): A Fresh Look at Valuation After Recent Share Price Rebound

Dec -05

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Canadian Pacific Kansas City Limited (CP): A Bull Case Theory

Dec -04

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Canadian Pacific a "Cheap Hedge," CIBC Says

Nov -26

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Bernstein Lowers Price Target on CP as Intermodal Shifts Accelerate

Nov -21

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Is Canadian Pacific Kansas City a Bargain After Recent 9% Price Drop and Trade Expansion News?

Nov -20

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CPKC's President and CEO Keith Creel; SVP, Accounting, Planning and Procurement Ian Gray to address the 2025 UBS Global Industrials and Transportation Conference

Nov -19

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Here's Why Investors Should Give Canadian Pacific Stock a Miss Now

Nov -18

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4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (4.50%)

6. Segments

Rail Transportation

Expected Growth: 4.5%

Canadian Pacific Railway Limited's rail transportation services growth is driven by increasing demand for efficient logistics, a growing economy, and strategic investments in digitalization and infrastructure expansion, leading to a forecasted growth rate.

7. Detailed Products

Grain Transportation

Canadian Pacific Railway Limited provides grain transportation services to farmers and grain companies, offering a reliable and efficient way to move grain across North America.

Coal Transportation

The company offers coal transportation services to mining companies and power plants, providing a safe and reliable way to move coal across the continent.

Intermodal Transportation

Canadian Pacific Railway Limited offers intermodal transportation services, providing a seamless and efficient way to move goods in containers between ships, trains, and trucks.

Automotive Transportation

The company provides automotive transportation services to car manufacturers and dealerships, offering a safe and efficient way to move vehicles across North America.

Energy Transportation

Canadian Pacific Railway Limited offers energy transportation services, providing a safe and efficient way to move crude oil, liquefied petroleum gas, and other energy products.

Forest Products Transportation

The company provides forest products transportation services to lumber mills and paper companies, offering a reliable and efficient way to move forest products across North America.

8. Canadian Pacific Railway Limited's Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for Canadian Pacific Railway Limited is low due to the high barriers to entry and the lack of viable substitutes for rail transportation.

Bargaining Power Of Customers

The bargaining power of customers for Canadian Pacific Railway Limited is medium due to the presence of large industrial customers who can negotiate prices, but the company's diversified customer base and lack of dependence on a single customer mitigate this power.

Bargaining Power Of Suppliers

The bargaining power of suppliers for Canadian Pacific Railway Limited is low due to the company's large scale of operations and its ability to negotiate prices with suppliers.

Threat Of New Entrants

The threat of new entrants for Canadian Pacific Railway Limited is low due to the high barriers to entry, including the need for significant capital investment and regulatory approvals.

Intensity Of Rivalry

The intensity of rivalry for Canadian Pacific Railway Limited is high due to the presence of strong competitors in the rail industry, including Canadian National Railway Company, and the ongoing competition for market share and pricing power.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 35.23%
Debt Cost 3.95%
Equity Weight 64.77%
Equity Cost 7.82%
WACC 6.46%
Leverage 54.38%

11. Quality Control: Canadian Pacific Railway Limited passed 3 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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TransDigm Group

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Value: 3.0

Growth: 7.9

Quality: 6.7

Yield: 9.0

Momentum: 4.0

Volatility: 8.0

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CN Rail

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Growth: 5.1

Quality: 6.4

Yield: 5.0

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Union Pacific

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Value: 2.5

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Quality: 6.4

Yield: 4.0

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Quality: 6.3

Yield: 0.0

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Canadian Pacific Railway

A-Score: 5.1/10

Value: 2.9

Growth: 5.4

Quality: 6.4

Yield: 2.0

Momentum: 4.0

Volatility: 9.7

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

101.95$

Current Price

101.95$

Potential

-0.00%

Expected Cash-Flows